Global market in 2016 drowning in oil
IEA and Opec see a grim 2016 for oil markets due to oversupply
International Energy Agency (IEA) and Opec issued bleak outlooks for global oil markets this year, reflecting new macroeconomic headwinds which may slowing demand growth even while non-Opec production begins to tail off.
But while the IEA thinks the market “could drown in oversupply”, Opec reckons 2016 will see some balance restored. Thanks to cuts in supply outside the group, Opec sees the call on its crude rising sharply this year.
The IEA says global crude demand will rise by 1.2m b/d this year, reaching 95.7m b/d. This is down from the 1.7m b/d rise in 2015. Opec, only slightly more bullish, sees consumption rising in 2016 by 1.26m b/d, to 94.17m b/d.
Slower demand-growth expectations reflect last year’s sharp low-price-induced surge in consumption: that effect will not be repeated. But the more bearish outlook for 2016 also rests on weaker economic data from China – once the driver of global crude demand – Japan, Brazil and the US. Fuel-subsidy cuts in Saudi Arabia, announced in December, can also be expected to curb some demand, while mild winter weather across all regions has already reduced the need for diesel and heating oil.
Non-Opec production will fall in 2016 by 0.6m b/d, to 57m b/d, forecasts the IEA. But even this won’t offer much for bulls to draw on, as it will be “largely offset” by
higher output from Iran. Opec’s own production – in December it fell by 90,000 b/d, to 32.28m b/d (31.61m b/d excluding Indonesia)– remains high, almost 2m b/d above the nominal ceiling it maintained until last December’s meeting.
Much will depend on how much oil Iran sells now that sanctions are lifted. After sanctions were lifted in mid-January Iran vowed to ramp up production by 0.5m b/d immediately and then by another 0.5m within a year. The IEA says Iran could add 300,000 b/d of crude to global supplies by the end of March – a bearish force that will be multiplied by competitive pricing from the country’s Gulf rivals. Should Iran exceed those numbers, adding say 600,000 b/d by mid-year, the market would be oversupplied by 1.5m b/d, the IEA says.
Opec, meanwhile, sees production outside the group falling in 2016 by 0.66m b/d. Most of the losses will come from the US and Canada. Opec’s view differs from that of producers in Canada, where the oil sands are expected to add up to 0.5m b/d by end-2017, thanks to already-sanctioned projects. Previously, the group forecast a fall in non-Opec supply of 380,000 b/d.
“After seven straight years of phenomenal non-Opec supply growth, often greater than 2m b/d, 2016 is set to see output decline as the effects of deep capex cuts start to feed through,” says Opec.
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